Heritage Financial's (NASDAQ:HFWA) Shareholders Will Receive A Bigger Dividend Than Last Year

Heritage Financial Corporation (NASDAQ:HFWA) will increase its dividend from last year's comparable payment on the 22nd of February to $0.22. This makes the dividend yield about the same as the industry average at 3.1%.

Check out our latest analysis for Heritage Financial

Heritage Financial's Payment Expected To Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Heritage Financial has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 36%, which means that Heritage Financial would be able to pay its last dividend without pressure on the balance sheet.

The next 3 years are set to see EPS grow by 18.6%. The future payout ratio could be 35% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was $0.24, compared to the most recent full-year payment of $0.88. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Heritage Financial has been growing its earnings per share at 11% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We Really Like Heritage Financial's Dividend

Overall, a dividend increase is always good, and we think that Heritage Financial is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Heritage Financial that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.